Operations Management Location Strategies Chapter 4 OPM 533 4-

Location Decision Sequence OPM 533 4- Country © 1995 Corel Corp. Region/Community © 1995 Corel Corp. Site © 1995 Corel Corp.

Factors That Affect Location Decisions OPM 533 4-

Locational Break-Even Analysis Example OPM 533 4- You’re an analyst for AC Delco. You’re considering a new manufacturing plant in Asahan, Baling, or Chini. Fixed costs per year are RM30k, RM60k, & RM110k respectively. Variable costs per case are RM75, RM45, & RM25 respectively. The price per case is RM120. What is the best location for an expected volume of 2,000 cases per year? © 1995 Corel Corp.

Locational Break-Even Crossover Chart OPM 533 4- 0 50000 100000 150000 200000 0 500 1000 1500 2000 2500 3000 Volume Annual Cost Asahan Chini Baling Baling lowest cost Chini lowest cost Asahan lowest cost

Center of Gravity Method Equations OPM 533 4- d ix = x coordinate of location i W i = Volume of goods moved to or from location i d iy = y coordinate of location i X Coordinate Y Coordinate

Center-of-Gravity Method Example Quain’s Discount Department Store has four stores located in Chicago, Pittsburg, New York and Atlanta. They are currently being supplied out of an old and inadequate warehouse in Pittsburgh, the site of the chain first store. The firm has decided to find some “central” location in which to build a new warehouse . Data on demand rates and the current location of each store are as above. Number of Containers Store Location Coordinate Shipped per Month Chicago (30, 120) 2,000 Pittsburgh (90, 110) 1,000 New York (130, 130) 1,000 Atlanta (60, 40) 2,000

Center-of-Gravity Method - Example North-South East-West 120 – 90 – 60 – 30 – – | | | | | | 30 60 90 120 150 Arbitrary origin Chicago (30, 120) New York (130, 130) Pittsburgh (90, 110) Atlanta (60, 40)

Center-of-Gravity Method Example Number of Containers Store Location Coordinate Shipped per Month Chicago (30, 120) 2,000 Pittsburgh (90, 110) 1,000 New York (130, 130) 1,000 Atlanta (60, 40) 2,000 x-coordinate = (30)(2000) + (90)(1000) + (130)(1000) + (60)(2000) 2000 + 1000 + 1000 + 2000 = 66.7 y-coordinate = (120)(2000) + (110)(1000) + (130)(1000) + (40)(2000) 2000 + 1000 + 1000 + 2000 = 93.3

Coordinate Locations of Four Quain’s Department Stores and the Center of Gravity OPM 533 4-

Final Thought OPM 533 4- The ideal location for many companies in the future will be a floating factory ship that will go from port to port, from country to country – wherever cost per unit is lowest. © 1995 Corel Corp.